Endowment Policy Meaning
It is a type of life insurance policy which offers you insurance cover as well as savings plan i.e. it offers a combination of insurance cover and savings plan. An endowment policy helps you to save regularly over a specified period of time. If you survive the policy term, a lump sum amount is paid to you on maturity of the policy.
Under an endowment policy plan, the maturity amount is provided to the policyholder after a specified period of time as per the terms and conditions of the policy. If the policyholder dies during the policy term, the sum assured is paid by the insurance company to the person named in the policy. Additionally, an endowment policy is very useful for a person to financially secure himself and his family after retirement.
Features & Benefits Of Endowment Plan
- Death Benefit with Survival Benefit :
An endowment policy provides death benefit along with survival benefit. This means that if the policyholder survives the policy term, he is paid the maturity amount at the end of the policy term. If the policyholder dies during the policy term, the sum assured is provided as death benefit to the nominee of the policy.
- Dual Purpose:
An Endowment Policy serves a dual purpose benefit to the policyholder i.e. on one hand it acts as an insurance policy while on the other hand it also provides the benefit of long term investment to the policyholder.
- Lump sum payment:
An endowment policy pays a lump sum amount to the policyholder at maturity.
- High Returns:
An endowment plan provides a golden option to the policyholder to build a corpus for the future and achieve financial security for himself and his family. The survival benefit and death benefit available in an endowment plan are much higher as compared to a pure life policy.
- Premium Payment Frequency:
In an endowment policy, the policyholder can choose his premium payment frequency as per his convenience. Policy holders can pay their premiums on a monthly, quarterly, half-monthly or yearly basis as per their convenience.
- Read Also Whole Life Insurance
- Long Term Savings:
An endowment plan provides the benefit of a savings plan to the policy holder for a longer period of time. Sections reached through this plan can choose the policy term up to 10, 15, 20, 30 or 40 years.
- Option to add riders:
Endowment policies also provide you the option of adding riders. You can further enhance your financial cover by adding riders to your policy. It gives you the option of adding different types of riders like waiver of premium for critical illness, family income benefit, accidental death benefit, accidental permanent or temporary total or partial disability.
- Tax Benefits:
In an endowment policy the policyholder can avail tax exemption on the premiums paid and on the maturity benefit under section 80C and section 10(10D) of the Income Tax Act, 1961.
- Low Risk:
A traditional endowment plan is less risky than mutual funds or other ULIP investment options as the amount is not directly invested in equity funds or the stock market.
- Additional Bonus:
Bonus is also provided by the insurer in an endowment policy. This bonus is added as an additional amount to the income.
What Are The Types Of Endowment Insurance Policy?
Generally two types of endowment insurance policies are found-
- Unit Linked Endowment Insurance Policy
- Standard Endowment Insurance Policy
In a Unit Linked Endowment Plan, the policyholder is given the option to choose the entities in which he/she wants to invest his/her money.
Standard endowment insurance policies are less risky than unit linked endowment insurance policies. In both these policies, the maturity benefit is provided to the policyholder on completion of the policy term and in both these policies, if the policyholder dies during the policy term, the death benefit is provided to the nominee of the policy. Also, in an endowment insurance policy, bonus is also provided to the policy holder.
Riders Available Under Endowment Plan
An endowment plan provides the policyholder with the option of adding a variety of riders. Through these riders, the policyholder can get additional coverage in his policy. However, these riders are optional and policyholders may or may not opt for them as per their requirement. If policyholders add riders to their endowment plan, then they have to pay an additional premium for the same. Now we will know in detail about the riders available under the endowment plan.
- Serious diseases:
Through this riders a lump sum amount is provided to the policyholder if the policyholder suffers from critical illnesses like cancer, heart attack, stroke, kidney disease, etc.
- Accidental Death:
Through Accidental Death Rider, if the policyholder dies in an accident, along with the death benefit given to the beneficiary by the insurance company, the accidental benefit is also paid.
- Disability:
If the policyholder becomes disabled in an accident through the disability rider, then additional assistance is provided to him.
- Waiver of Premium:
Waiver of premium rider If the policyholder is not able to pay the premium due to any reason, such as due to serious illness or permanent incapacitation, then through this rider he is exempted from paying the premium She goes.
- Hospital Cash Benefit:
Daily allowance as well as post-hospitalization expenses are covered in case of hospitalization of the policyholder through Hospital Cash Benefit rider
Things You Need To Know Before Buying An Endowment Plan
- Early Investment Selection:
From an investment point of view, an endowment plan can be a very good option. Hence it is essential that you buy an endowment plan as early as possible to get the most out of it. The younger you buy the plan, the longer you can choose to invest your savings.
- Riders:
While choosing an endowment plan, you should consider the riders available in it. You can add additional cover to your insurance cover through these riders. However, you have to pay an additional premium to add these riders. But keeping in mind your future requirement, you must choose from these riders as per your need.
- Flexibility:
The flexibility offered should be considered while choosing a settlement plan. Suppose if one is salaried then he/she can easily pay the premium of endowment policy regularly whereas a person with irregular income may not be able to pay his/her premium regularly. Hence, in an endowment plan, one should get a single pay option or limited premium payment option along with regular premium payment.
- Guaranteed and Non-Guaranteed Returns:
You should also consider the guaranteed and non-guaranteed returns while taking an endowment plan. Many endowment policies also offer a combination of the two.
- Bonus:
In the endowment plan policy, you are also provided with a bonus by the insurance company. Therefore, before buying endowment plans from any company, you must make sure that how much bonus will be provided by it to the policyholder. In order to maximize your profit, you can go with an insurance company that promises you the maximum bonus.